FROM THE OFFICE OF PUBLIC AFFAIRS

The Administration has expressed strong opposition to the Financial Modernization legislation, H.R. 10, in its current form and has stated that the bill will be vetoed unless significant changes are made.

A key issue in the current discussions about H.R. 10 involves the obligations of financial institutions to serve the credit and other banking needs of low- and middle-income Americans. Recent reports indicate that proposals may be considered that would undermine the Community Reinvestment Act. I want to make clear that any efforts to undercut CRA, as well as any proposals that would provide the opportunity for depository institutions to evade CRA responsibilities, would be unacceptable to the Administration.

The failure to extend CRA to all wholesale financial institutions, which will enjoy access to such benefits as the discount window and the payments system, would open opportunities for significant evasion of CRA and are not justified. The elimination of the requirement in the House-passed version of H.R. 10 for a satisfactory CRA rating as a prerequisite for eligibility for new powers would erode CRA enforcement by removing an important incentive for banks to demonstrate CRA performance. Finally, restrictions that would prohibit banks from conducting new financial activities through subsidiaries, which we have opposed for other reasons as well, would tend to force bank resources into affiliates and would thus have seriously adverse consequences for CRA .